Canada's C$151.7bn Caisse de dépôt et placement du Québec endured turbulent times during the credit crisis leading to chief executive officer Michael Sabia announcing a stronger risk management ethos to investment strategy in January 2010. Helen Morrissey talks to chief risk officer Claude Bergeron about how this commitment is changing how the Caisse works
Helen Morrissey: What are the circumstances behind the Caisse de depot et placement du Quebec deciding to strengthen its risk management processes?
Claude Bergeron: Improving risk management at the Caisse has been a strong priority for us over the past 18 months. We have worked a lot to achieve this in terms of developing our tools, processes, culture and governance. These changes came about as a result of the financial crisis in 2008 – we were strongly affected by this. This was partly down to our exposure to asset backed commercial paper (ABCP) but overall during 2008 we lost C$40bn and posted a return of -24%. In circumstances like this you have to react quickly and strongly and so risk management has taken centre stage for us ever since.
Helen Morrissey: What exactly did you do as part of this process?
Claude Bergeron: The most important thing for us was to look at our core competencies and analyse the portfolios that we offer to our depositors. For instance, as part of a global portfolio, our assessment was that Caisse had core competences to be able to provide a mix of internal active management and external management in that portfolio.
We manage the assets for public and private pensions funds as well as insurance companies in Quebec and we had to review the choices we were offering to them. We offer both active portfolios and indices portfolios to our depositors and they can include bond portfolios as well as real estate, infrastructure and long term debt. We had to change the investment policies attached to each of these areas. (See box out) Part of this improvement was to focus on providing better benchmarks. We also looked closely at each investment group within the Caisse and tried to establish what we could expect each group to return and what level of risk can be taken in order to achieve this.
Helen Morrissey: What are the key lessons that you have learned as part of this process?
Claude Bergeron: We are committed to making sure that we improve every day and one of the big things for us was to make sure Caisse staff were able to cross the different silos that had built up between the different investment teams. In the past separating the investment groups has affected us and we needed to work together to make sure we developed products that take risk ratios into account. It is a good exercise in building up team knowledge of what is going on around the Caisse at any one time. However, we had to realise that you cannot change the entire culture of a company in a day but we are improving a lot by working as a team.
In terms of developing a different working culture we operate a regular top level review for each investment group that we operate. This information is then passed on to a board risk committee who look at this data in terms of strategy, asset class and the position we need to take. The result of this is that we share our views as to what the right ratio of risk should be.
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